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UK officials hope to spur blockchain development with regulatory sandbox – DL News
- From today, modified financial rules apply, allowing companies to evaluate blockchain technology.
- The FCA and the Bank of England will oversee the project, which will last five years.
- Regulators are interested in tokenizing securities for more efficient markets.
UK regulators did modified the current legislation provide a controlled environment where financial firms can experiment with securities trading on blockchain technology.
From today, the Financial Services and Markets Act will apply to companies participating in the Digital Securities Sandbox, overseen by the Financial Conduct Authority and the Bank of England.
Resource tokenization – trading representations of securities on the blockchain – is a trendy buzzword.
BlackRock CEO Larry Fink also said that tokenization is the future of financial markets.
However, there are legal and regulatory hurdles for financial companies looking to tokenize securities.
The sandbox follows a consultation process which began when a government report found that the UK’s legal framework would not support the use of blockchain.
Regulators around the world are responding by creating controlled environments where companies can test blockchain technology, and DSS is one such initiative.
Kelly Coulter, digital asset specialist at the FCA, told an interviewer in December that the DSS would allow registered and regulated firms “to practice in a real-world environment to test traditional asset trading and settlement.”
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Coulter said that while much of the public and media attention has focused on speculation in cryptocurrencies like Bitcoin, regulators see real value in the digital asset ecosystem in representing traditional assets with smart contracts.
“It aims to improve the efficiency, transparency and accessibility of financial services for customers. So we’re really excited to look at this and understand what challenges there are, but also what opportunities there are,” Coulter said.
Market plumbing
The FCA already has an innovation sandbox, aimed at helping fintechs test their products with consumers.
DSS is a different concept.
It is intended for companies that provide the plumbing of securities markets – stock exchanges, clearinghouses and investment firms – to test trading digital versions of instruments such as stocks and bonds.
The government She said by December 19 companies had expressed interest in participating in the sandbox.
The DSS will last five years. At the end of the four years, Her Majesty’s Treasury will have to report to Parliament on how well the sandbox is working and whether she intends to extend the initiative.
Global projects
The DSS follows initiatives in other countries aimed at easing regulatory restrictions on blockchain technology in financial markets.
Last year the EU launched its distributed ledger technology pilot, which similarly aims to allow trading and settlement companies to experiment with blockchain.
The FCA, along with Swiss and Japanese regulators, have worked with the Singapore government on an initiative called Project Guardian. The FCA She said this project “explores fund and asset tokenization and decentralized finance use cases.”
Email the writer at joanna@dlnews.com.